HOUSING: When a mortgage puts a home buyer at a disadvantage

CHICAGO ---- For home buyers who need to finance their purchase
using a mortgage, a cash buyer can be their worst enemy.

That's because when a buyer makes a cash offer, the seller knows
it's a solid deal ---- and that financing hiccups won't delay a
closing. Sometimes, that's enough for the seller to accept a lower
bid for a cash deal instead of a higher bid from a financing
buyer.

It happened to a client of Dan Quinn, a real-estate agent who
works for Prudential Carruthers Realtors in Silver Spring, Md.
Against a cash buyer, the financing borrower just couldn't compete,
Quinn said.

"We were wringing our hands over this because the offer that
came in on this property was cash, and we were quite a bit higher
than the offer," Quinn said. The winning bid was for $370,000; his
client's offer was $395,000, he said.

It's a scenario that is becoming more common with the number of
cash buyers on the rise, swooping in for deals on low-priced
properties. Yet while cash is king, there are some things financing
buyers can do to better their chances of having an offer
accepted.

Perhaps the most important tip: "The smartest thing they can do
is make sure they talk to a competent mortgage banker ... to
preapprove them ahead of time," said Mike Litzner, broker and owner
of Century 21 American Homes, which has locations in Queens, Nassau
and Suffolk counties in New York.

Also, remember that the more cash you're willing to put down,
the more secure your job and the better your credit, the better off
you will be in getting the seller to accept your bid, he said.

In February, all-cash deals made up 33 percent of all home sales
---- a record high, according to the National Association of
Realtors. In 2010, 59 percent of those who bought a home as an
investment paid cash for the home, the group found.

People are plunking down cash on properties for a variety of
reasons. One popular one: With low housing prices, some people are
pulling their money out of the stock market and investing in rental
properties, with a plan to own them long term, Quinn said.

That way, their money "is being put to work in what seems to be
a bottoming housing market," he said. "You can buy these things
cheap enough and with a small amount of renovation ... the rents
pay the mortgage," Quinn said.

Some parents may be providing the cash to help their children
buy homes, at a time when financing can be out of reach for young
adults, Quinn said.

Instead of applying for a loan from a bank, the kids make their
payments to the Bank of Mom and Dad. Meanwhile, the parents can
charge 5 percent to 6 percent interest on the loan ---- earning
them more than they'd get on a safe investment such as a
certificate of deposit.

Cash offers often win out when the bank is the seller. Those are
most likely foreclosures now back on the lender's books.